Bank voted 8-1 to hold rates as inflation concerns grew

Just a single member of the Bank of England's Monetary Policy Committee voted for an interest rate cut this month, it emerged yesterday, further reducing the likelihood that there will be a drop in the cost of borrowing in the months ahead.

The minutes of the MPC's May meeting showed that David Blanchflower, who has repeatedly advocated more aggressive rate cuts than his eight colleagues on the committee, was the only member to vote to cut rates from 5 per cent to 4.75 per cent.

The minutes surprised economists, who had expected a more finely balanced debate over whether the risk of a slowdown in the UK outweighed concerns over rising inflation. However, while the MPC held its meeting before the publication of the Bank of England's quarterly Inflation Report, the committee was briefed on the details. The report warned price rises were likely to move above 3 per cent for much of the remainder of this year, prompting the Governor to write a series of letters to the Chancellor explaining his failure to keep within a percentage point of the Bank's 2 per cent inflation target.

"For most members, a reduction in bank rate this month would make it more difficult to keep inflation expectations in line with the target," the MPC concluded.

Jonathan Loynes, chief European economist at Capital Economics, said the minutes showed the MPC's emphasis had shifted decisively away from preventing slowdown towards bringing inflation under control. "We still think a deeper downturn in the economy than the MPC expects will eventually lead to further considerable cuts in interest rates," Mr Loynes said. "But with inflation set to move into letter-writing territory, the next cut looks unlikely to come for a few months unless the activity news is absolutely dreadful."

A similar thinking on rates emerged yesterday in the US, when the Federal Reserve released minutes which revealed the April rate cut was a "close call". This appeared to shut the door on the possibility of further cuts.

In the UK, economists said data published yesterday was disappointing rather than disastrous. Figures from the Office for National Statistics showed a modest surplus in the public finances during April, with higher than expected tax receipts and modest spending increases resulting in a £1bn debt repayment.

More worryingly, the Council of Mortgage Lenders said that home loan advances were down by 7.7 per cent during April against the same month last year.